For Immediate Release
Chicago, IL - August 10, 2015 - Zacks.com releases the list of companies likely to issue earnings surprises. This week's list includes Macy's ( M ), Nordstrom ( JWN ), Kohl's ( KSS ) and Bank of America ( BAC ) .
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Sizing Up the Retail Sector's Earnings Picture
The Retail sector is the only one where a significant number of Q2 earnings reports are still awaited at this stage; the reporting cycle has effectively come to an end for most of the other sectors, particularly in the large-cap S&P 500 index.
Almost 90% of the S&P 500 members have already reported Q2 results, though results from more than half of the retailers in the index are still to come. We have more than 400 companies coming out with quarterly results this week, including 16 S&P 500 members that includes major retailers like Macy's ( M ), Nordstrom ( JWN ) and Kohl's ( KSS ).
While plenty of Retail sector reports are still to come, the sector has had a fairly good run thus far in the Q2 earnings season. It appears that the sector's greater domestic orientation is helping it from the strong dollar issue that has been the persistent concern in most other sectors. Yet, improving consumer buying power as a result of a stronger labor market and lower energy expenses are benefiting retailers. The sector's strong stock-market performance lately is likely a reflection of this favorable backdrop - it has outperformed the S&P 500 index and trails only Medical and Consumer Staples, among the major sectors, year to date.
The Retail Scorecard
As of Friday August 7th, we have seen Q2 results from 21 retailers in the S&P 500 index (out of the 43 total) that combined account for 56.2% of the sector's total market cap in the index. Total earnings for these 21 retails are up +7.7% from the same period last year, on +12.6% higher revenues, with 71.4% beating EPS estimates and 47.6% coming ahead of top-line expectations.
The Q2 Scorecard
As of August 7th, we have seen Q2 results from 444 S&P 500 members that combined account for 89.4% of the index's total market capitalization. Total earnings for these companies are down -2.5% on -4.2% revenue losses, with 70.6% beating EPS estimates and 50.1% coming ahead of revenue expectations.
Putting Q2 Results in Context
Here are the takeaways:
The earnings growth rate (-2.5%) is notably weaker compared to other recent quarters.
Similar to the earnings growth pace, the revenue growth rate (-4.2%) is below what we saw from this group of companies in Q1 (-3.9%) as well as in the 4-quarter average (+1.8%).
The earnings beat ratio (70.6%) is tracking above what we saw from this group of companies in Q1, though remains in-line with the 4-quarter average.
he revenue beat (50.1%) ratio is better than what these same companies reported in the preceding quarter, and slightly below the 4-quarter average.
The Energy Drag
With most of the Energy sector's results already out (97.5% of the sector's market cap in the index have reported), total earnings for the sector are down -60.4% on -31.6% lower revenues, with only 69.2% beating EPS estimates and 53.8% coming ahead of top-line estimates.
This is the weakest performance that we have seen from the sector in any other recent quarter and remains a big drag on the aggregate growth picture for the S&P 500 index. Excluding the Energy sector results, total earnings for the rest of the index members that have reported results would be up +5.6% from the same period last year on +1.3% higher revenues. But as you can see in the side-by-side comparison charts of the index's growth picture with and without the Energy sector, the index's growth pace would still be below other recent periods even without the Energy sector.
The Finance Effect
Total earnings for the 89.2% of the Finance sector's market cap that has reported results are up +8.8% on +1.3% higher revenues, with 68.3% beating EPS estimates and 65.9% coming ahead of top-line expectations. This is better performance than we have seen from this group of Finance sector companies in other recent quarters. The sector's earnings picture has benefited from a combination of fewer litigation charges, tighter expense controls, and modest improvements in core business lines in an otherwise still unfavorable interest rate backdrop.
Please keep in mind that a big part of the +16.2% earnings growth for the sector in the preceding quarter was thanks mostly to easy comparisons at Bank of America ( BAC ). Adjusted for the Bank of America results, Q2 earnings growth for the sector is tracking better relative to the recent past. Revenues of course are a different matter, as briefly referred to earlier. These results have been better than expected, as the right-hand side chart above shows.
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